Sequoia is the latest to issue a warning shot to founders

Another week, another message to startups that the good times are dead.

This time, the message comes directly from the original authors of RIP Good Times in 2008: Sequoia Capital.

The venture giant, known for its investments in tech titans like Apple, Uber and Google, shared a 52-slide presentation with 250 founders on May 16 via Zoom that warned of a “tipping point” of uncertainty for the stock market. risk due to inflation. markets and geopolitical issues, reported The Information, which also saw the presentation.

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Sequoia told the founders not to expect a “rapid V-shaped recovery like we saw at the start of the pandemic,” and suggested extending the runway and examining their businesses for cost overruns.

“Do not view (the cuts) as a negative, but as a way to conserve cash and run faster,” Sequoia wrote.

The Menlo Park, California-based firm has a habit of issuing warning signs to its portfolio companies. Aside from his 2008 slideshow warning of the impacts of the global financial crisis, Sequoia also penned another missive in 2020 titled “Coronavirus: The Black Swan of 2020.”

It’s interesting to note that despite the warning, Sequoia is on track to make more investments in the first half of this year than it did last year, according to data from Crunchbase. In the first half of 2021, the firm made 85 bets on startups, while it has already made 76 investments this calendar year.

It’s not new news

Sequoia becomes the latest big-name venture company to send red flags to its founders in recent weeks. Last week, startup accelerator Y Combinator issued a similar sentiment to its companies.

“No one can predict how bad the economy will get, but things are not looking good,” YC wrote in a letter sent to his portfolio founders last week titled “Economic Recession.” The content of the letter was first reported by TechCrunch.

“The safe move is to plan for the worst,” Accelerator wrote.

Earlier this month, SoftBank announced that it will be much more selective in investments after announcing a loss of $27.7 billion in investments in its Vision Fund for the fiscal year that just ended.

All of that was preceded by reports earlier in the year that large crossover firms like Tiger Global and D1 Capital were also pulling out late-stage investments.

The risk market has already shown some weakness, falling quarter-on-quarter for the first time in the first quarter of 2022.

The slowdown in the private market is a reflection of the drop in many technology stocks, including Netflix and Meta, in the public market. Those losses can make it difficult for venture capitalists to raise money from LPs, as well as cause some high-growth companies to pour their money into the public rather than the private market in search of bargains.

Adding to the slump in the market are ongoing problems with inflation, interest rates and geopolitical unrest that have made risky dollars harder to come by.

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Illustration: Li-Anne Dias

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